South Sudan to split Total's oil block

Juba, September 14, 2012

Newly independent South Sudan has decided to break up a massive oil concession largely held by Total into three blocks, granting one to the French energy company and the others to two foreign firms, government officials said.

One oil industry source identified the other two operators as US firm Exxon Mobil and Kuwait's Kufpec, which had already claimed about a quarter of the mostly unexplored block, known as Block B.

Total had already challenged the decision to split the block, granted before South Sudan split away from Sudan last year, Deputy Minister for Petroleum and Mining Elizabeth James Bol told Reuters.

Other government officials said South Sudan had the right to renegotiate deals agreed in the old, united Sudan and would go ahead and divide the concession, which comprises much of South Sudan's eastern Jonglei state.

South Sudan, which depends heavily on oil but whose reserves are expected to decline sharply in coming years, had been pressing Total to start exploring Block B, which at about 120,000 square km was roughly the size of nearby Eritrea.

Total stopped operations in the block in 1985 after the resumption of Sudan's decades-long civil war, which ended with a 2005 peace deal that paved the way for South Sudan to declare independence last year.

Despite holding on to its claim to a leading stake in Block B, Total has not yet resumed exploration - a source of friction with some South Sudanese officials. In February Total said it would resume exploration soon.

It was unclear whether Total would have any legal grounds to challenge the decision.

A petroleum bill passed after South Sudan seceded said its new government was not bound by past agreements and had the right to review and split blocks.

In January, South Sudan said it had signed new agreements with the Chinese, Malaysian and Indian companies that dominate the country's oil sector to replace the existing deals with north Sudan.

South Sudan's Information Minister Barnaba Marial Benjamin told Reuters one of the three blocks would go to Total.

"The other two will be put on tender ... It's going to happen soon," Benjamin added. "The ministry has a green light to go ahead with that."

Asked about Total's previous agreement, he said: "That was with the old Sudan ... This is a different country altogether. They recognize that."

An industry source speaking on condition of anonymity said the two remaining blocks would go to Exxon Mobil and Kufpec, Kuwait's state exploration firm.

The source said the final deal was not signed yet, but would be finished "as soon as possible". He gave no financial details.

The new nation wants to boost exploration because most old oilfields face declining reserves. Last year, the International Monetary Fund said South Sudan's production was likely to halve by 2020 without new discoveries or improved recovery.

Securing a deal with Exxon Mobil, the world's biggest oil group, would be a major boost for the world's newest country, still struggling to drag itself out of poverty.

US groups were barred from doing business with the united Sudan by sanctions imposed in 1997 for the country's previous role hosting militants including Osama bin Laden.

In December, the US Treasury Department's Office of Foreign Assets Control said the United States was easing sanctions on South Sudan to allow investment in the oil sector. - Reuters